The foundry also said it would ramp up production at a second 12-inch fab before the end of 2004. TSMC chairman Morris Chang said 0.13-micron technology is driving the capacity increase at Fab 12, the company's only 12-inch wafer facility.

"When we ramped up Fab 12, there was not enough demand to use Fab 12 for just 0.13. But in the third quarter, more than two-thirds of the capacity was used for 0.13. And that percentage will reach 100 percent in the next few months," Chang said.

Chang also noted that demand for 300-mm wafers, which has typically come from programmable logic device and graphics chip makers, is starting to broaden. He estimated that 10 to 20 customers are running products on the larger wafers.

If TSMC is a bellwether of the industry, then things have been going well. Capacity utilization rate hit 98% in the third quarter, even as more capacity was added, and gross margins slightly improved to 39%.

TSMC third quarter net sales totaled $1.6 billion, up 37% from a year ago and 10% from the second quarter. The company's $443 million profit is up 380% from a year ago and 29% sequentially.

The company said it expects wafer shipments to grow sequentially by a mid to high single digit percentage in the fourth quarter, but its average selling price per wafer will decline by 5% or less.

Utilization will dip to about 95% in the fourth quarter, dragged down by a slight seasonal decline in the computing and consumer segments and by 55,000 wafers per month additional capacity.

The company is on track to spend about $1.2 billion for capital expenditure this year as it increases capacity at its 12-inch fab as well as some of its 8-inch fabs.

TSMC is increasing the amount of sales derived from advanced technology, defined as 0.18-micron and finer geometries. In the third quarter, about two-thirds of sales came from these advanced technology nodes.